Are markets sentiment driving the price bubbles in the virtual?

Khaled GUESMI, Myriam BEN OSMAN, Emilios GALARIOTIS, Haykel HAMDI, Kamel Naoui

This paper investigates the existence of speculative bubbles in four crypto-market components (Bitcoin, Ethereum, CRIX index, DeFi pulse index) while date-stamping them, before using a wavelet coherence approach to look after the co-movement of each of those four digital tokens with three sentiment indices reflecting three different markets (Stock, gold, and crypto markets). Thereafter, we study the sentiment-price return connection and its concordance with periods of existing bubbles. Our results show the existence of multiple bubble regimes in the virtual market and more specifically, a huge bubble occurring during the crypto-market bull phase for Bitcoin, Ethereum, and CRIX. Moreover, we find that the bubbles that occurred during the COVID-19 pandemic concord with periods of high sentiment co-movement with the three markets. Hence, some of those bubble periods are in phases with periods of high co-movement with sentiments toward different markets. In addition, the fear and greed toward the crypto-market seem to be the leading sentiment index that highly influences the crypto-market components and their bubble appearances.

Publication type: 
Scientific Article
Date de parution: 
International Review of Economics & Finance